CMS May Back Off Two-Midnight Rule Payment Offset

CMS has issued a proposed rule for FY 2017 that would eliminate a 0.2 percent cut implemented as part of its controversial “two-midnight” policy.


“CMS finally saw the light and proposed to terminate their flawed Two Midnight payment cut in the Inpatient Prospective Payment System (IPPS) rule,” said an executive from Premier in a written statement. (‘CMS Backs Off Two-Midnight Cut,” HFMA Weekly, April 22, 2016)


Medicare has cut inpatient prospective payment system (IPPS) rates by 0.2 percent each year since FY14 to offset the increase in IPPS expenditures that CMS estimated would result from the start of the two-midnight short-stay payment policy. Specifically, CMS estimated the policy would lead 400,000 patient stays to shift from outpatient to inpatient, while 360,000 inpatient stays would shift to outpatient. (‘CMS Backs Off Two-Midnight Cut,” HFMA Weekly, April 22, 2016)


Under the new proposed rule, payment rates would increase by roughly 0.8% in FY 2017 to not only eliminate the offset prospectively, but also to address retroactively its effects in FYs 2014, 2015, and 2016, CMS said in a fact sheet. (“CMS Proposed Inpatient Payment Rule Nixes Two-Midnight Offset,” AHLA Weekly, April 22, 2016)


The two-midnight rule has generated controversy and several lawsuits from a number of hospitals and the American Hospital Association. It isn’t clear what impact the rate decision would have on the ongoing legal challenges to the cut. Given the legal uncertainty, one law firm suggested hospitals include the 0.2 percent payment reduction and related policies as protest items on FY15 and FY16 cost reports. (‘CMS Backs Off Two-Midnight Cut,” HFMA Weekly, April 22, 2016)


Background on Two-Midnight Rule


In the FY 2014 IPPS final rule, CMS established a new policy that presumes an inpatient hospital stay expected to span at least two midnights qualifies for Medicare Part A payment. Conversely, admissions spanning less than that time period should be provided on an outpatient basis and paid under Medicare Part B.


In the same rule, CMS called for an across-the-board 0.2% payment cut to offset the alleged additional costs to the Medicare program for a net increase in inpatient admissions the agency believed would result from the new two-midnight policy.


In December 2015, CMS published a notice seeking comments on the methodology it used to calculate the 0.2% Medicare rate cut, and in mid-March, it was granted an extension of the deadline to April 27 for issuing a final notice.


We reported here that in November 2015 CMS changed its two-midnight policy to allow Medicare Part A payments for inpatient stays expected to last less than two midnights of hospital care “on a case-by-case basis based on the judgment of the admitting physician.” However, at that time CMS did not at that time address the Medicare rate offset.


CMS noted that “the assumptions underlying the -0.2 percent adjustment were reasonable at the time they were made,” the agency said in its April 18 fact sheet.” But it decided to do away with the offset, “in light of recent review and the unique circumstances surrounding this adjustment.” (Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Proposed Rule Issues for Fiscal Year (FY) 2017, CMS, April 18, 2016)


To read the CMS fact sheet, click here.




iProtean subscribers, the advanced Governance course, Committee Effectiveness, is in your library. This course features Barry Bader and Pam Knecht, who cover committee structure and task forces, ideal committee size and composition, independent members, the committee charter, information and reports, and committee evaluation.


Our upcoming course, Population Health and Alternative Payment Models, featuring Marian Jennings and Dan Grauman, will be in your library soon. Jennings and Grauman discuss the onset of alternative payment models within the context of population health management, and the levels of risk associated with these models.


For a complete list of iProtean courses, click here.



For more information about iProtean, click here.